DEAD MEN TELLING TALES – A POLICY-BASED PROPOSAL FOR SURVIVABILITY OF QUI TAM ACTIONS UNDER THE CIVIL FALSE
CLAIMS ACT
Vickie J. Williams1
“You are well on your way to becoming a pirate already . . . you are obsessed with treasure.”
Captain Jack Sparrow (Johnny Depp) to William Turner (Orlando Bloom) in PIRATES OF THE CARIBBEAN, THE CURSE OF THE BLACK PEARL(Walt Disney 2003).
“Yes I am a pirate, two hundred years too late. The cannons don’t thunder, there’s nothing to plunder, I’m an over-forty victim of fate.”
Jimmy Buffett, A Pirate Looks at Forty, on SONGS YOU KNOW
BY HEART (MCA Records 1990).
I. INTRODUCTION
Despite the demise of job security for pirates during the modern age lamented by singer/songwriter Jimmy Buffett in “A Pirate Looks at Forty,” the box-office success of recent movies about pirates such as Walt Disney Studio’s “Pirates of the Caribbean—The Curse of the Black Pearl” evidences the continued appeal of treasure-hunting and swashbuckling in the modern world. Therefore, it should be no surprise that a statute passed by Congress almost 140 years ago, designed to encourage private citizens to dig deeply into the affairs of entities that contract with the federal government in search of wrongdoing and extract buried treasure, continues to appeal to the watchdogs of the public fisc. More than a century after its birth as a fraud-fighting tool during wartime, the
1 Assistant Professor of Law, Gonzaga University School of Law. B.S., 1985, Tufts University; J.D., 1990,
New York University. The author thanks Ryan Goodell, Greg Garneau, and Michael Shachat for their research assistance with this article, and S. Elizabeth Bowen for her editorial assistance. The author also thanks her colleagues Mary Pat Treuthart and Sheri Engelken for their thoughtful comments on earlier versions of this article, and Lynn Daggett and Ann Murphy for their encouragement.
civil False Claims Act2 [hereinafter, “the Act”] continues to pique the imagination and fuel dreams of bounty and glory for both publicly anointed fraud -fighters and private persons who are authorized to sue on behalf of themselves and the Government under the Act’s unique “qui tam”3provisions.4 Consider the following modern-day uses of the Act, which illustrate its continued appeal to private citizens:
In order to be reimbursed for their costs in caring for Medicare patients, hospitals prepare a “cost report” and submit it to the federal government. A Chief Financial Officer of a hospital in Whitefish, Montana refused to prepare an “aggressive” cost report for submission to Medicare and an inconsistent “reserve” cost report for submission to the hospital’s auditors. The “aggressive” cost report showed greater costs to the hospital for caring for Medicare patients than the “reserve” cost report showed. The CFO was terminated from his position. In the course of pursuing a wrongful termination action against the hospital’s management company, which was a national company, the CFO discovered that all of the hospitals managed by the company submitted “aggressive” cost reports to Medicare that he considered fraudulent. The CFO filed a qui tam action under the Act against the management company, resulting in a total settlement payment of $85,773,745.81 by the company and a recovery of $20,585,698.99 by the CFO;5
A sales representative for a cardiovascular device manufacturer filed a qui
tam suit under the Act against 132 teaching hospitals. He alleged that they
had defrauded federal health care programs by submitting claims and receiving payments for services provided to patients participating in clinical trials involving cardiac devices that had not been fully approved for marketing by the Food and Drug Administration, in violation of a provision of a 1986 Medicare Manual that stated that payment would not be made for such procedures. The case, filed in 1994, continues ten years later against forty hospitals. The government and the sales representative
2 Civil False Claims Act, 31 U.S.C. §3729 -3733 (2000).
3 The term “qui tam” is short for the Latin “qui tam pro domino rege quam pro se ipso in hac parte
sequitur,” meaning “who pursues this action on our Lord the King’s behalf as well as his own.” See 3
WILLIAM BLACKSTONE, COMMENTARIES *161; Vermont Agency of Natural Resources v. United States ex
rel. Stevens, 529 U.S. 765, 769 n.1 (2000).
4 31 U.S.C. §3730(d) (2000). Early in American legal history, qui tam provisions in federal law were
relatively common. See, 1 JOHN T. BOESE, CIVIL FALSE CLAIMS AND QUI TAM ACTIONS §1.01[A] (2d ed. 2000). As the means for public law enforcement developed and increased, qui tam actions were increasingly disfavored in law, and by the 20th century, had virtually disappeared from federal law. Id.
have collected millions of dollars from teaching hospitals that have settled the cases against them;6
A disgruntled doctoral student brought a qui tam action under the Act against his former faculty advisor, alleging that the faculty advisor collaborated with other researchers to publish scholarly articles based on fabricated research and used the publications to defraud the Veterans Administration. The complaint was ultimately dismissed, but not before the defendant incurred significant costs by being forced to defend the matter on the student’s appeal to the Seventh Circuit Court of Appeals.7
Recoveries under the Act are potentially enormous because the Act authorizes the imposition of treble damages and substantial per-claim penalties against its violators.8 The magnitude of potential recovery provides federal prosecutors with a strong incentive to use the Act. Nevertheless, this powerful weapon does not work only for the federal government. The Act’s “qui tam” or whistleblower provision allows a private party to sue on its own behalf as well as on behalf of the United States, and collect a substantial bounty if the suit is successful.9 Actions brought by whistleblowers under the Act have recovered a total of $1.5 billion in fiscal year 2003 alone.10
The similarity between whistle blowing under the Act and the pursuit of bounty on the high seas did not go unnoticed even by the first courts to construe the statute, well over one hundred years ago. Early in the history of the Act, one court described the qui
tam provisions of the Act as follows: “Prosecutions conducted by such means [through a
private whistleblower] compare with the ordinary methods as the enterprising privateer
6In re Cardiac Devices Qui Tam Litigation, 221 F.R.D. 318 (D. Conn. 2004); Warren King, UW Agrees To
Settle Over Billing Claims, Seattle Times, September 16, 1999, available at LEXIS, News Library, Seattle
Times File.
7United States ex rel. Lu v. Ou, 368 F.3d 773 (7th Cir. 2004). 8 31 U.S.C. §3729(a) (2000).
9 31 U.S.C. §3730(d) (2000). The bounty is paid regardless of whether the defendant loses at trial or settles
the case. Id.
10
Pursuit of False Claims Cases Brings ‘Extraordinary’ Rewards, DOJ Official Says, 8 Health Care Fraud
does to the slow-going public vessel.”11 The potential windfall encourages private parties to attempt to use this fraud-fighting weapon for their own financial benefit, even when the United States has determined that it has no interest in pursuing a particular case.12
Just as the potential rewards to the successful whistleblower are never far from the minds of potential qui tam relators13 under the Act, the specter of financial ruin and adverse publicity that inevitably follows a prosecution under the Act is never far from the mind of entities that contract with the federal government.14 The magnitude of the damages recoverable under the Act, the collateral consequences of being found liable under the Act,15 and the inevitable tension between the United States, the relator, and the defendant when a treasure-hunting relator independently pursues a case that the United States has declined to pursue, gives rise to unique legal issues and challenges. In addition to substantive legal complications, many procedural complications spring from the complex relationship between the relator and the Government, and the unique procedural requirements for bringing a qui tam action under the Act.16
Not least among these complications is the length of time that a qui tam case under the Act can be under development, or filed and pending in court, before the defendant even knows of the action’s existence. The statute of limitations for bringing a
11
United States v. Griswold, 24 F. 361, 366 (D. Or. 1885), aff’d, 30 F. 762 (1887).
12
According to the head of the Department of Justice’s Civil Division, the United States declines to intervene in over 80% of qui tam cases. Pursuit of False Claims, supra note 10.
13 A “relator” is a person who furnishes information on which a civil or criminal case is based. B
LACK’S
LAW DICTIONARY 1292 (7th ed. 1999). The private person who brings a case under the Act’s qui tam provisions is called the “relator,” and the caption of such a case generally reads “United States ex rel. _____.” See id. at 603.
14See generally Stephanie L. Trunk, Note, Sounding the Death Toll for Health Care Providers: How the
Civil False Claims Act Has a Punitive Effect and Why the Act Warrants Reform of Its Damages and Penalties Provision, 71 Geo. Wash. L. Rev. 159, 161 (2003) (describing the financial impact of
prosecutions under the Act on health care providers).
15 For example, a health care provider who is found liable under the Act may be excluded from
participating in the Medicare or Medicaid programs. 42 U.S.C. §1320c-5 (Supp. 1998). For most health care providers, exclusion from these programs signals the end of their existence.
case under the Act can be as long as ten years.17 Even once a case is filed in court, the United States can request to keep it under seal for long periods of time, in renewable increments, at the discretion of the court.18 Additionally, along with a civil prosecution initiated under the Act, the United States often initiates a parallel criminal proceeding based on the same conduct, warranting a stay of the Act’s civil proceedings.19 It is also not uncommon for the defendant to declare bankruptcy while proceedings under the Act are pending, triggering an automatic stay of the proceedings in accordance with federal bankruptcy law.20
Given the uncommonly long time periods that a qui tam relator’s cause of action under the Act can remain in limbo, both prior to filing and after it is filed in court, the prospect of a relator’s death during the pendency of the action is very real.21 When the relator dies while the case remains pending, and the United States has declined to intervene in the case, the court must decide whether the action survives the relator’s death. The United States Supreme Court has issued conflicting guidance about the
17
A civil action under the Act must be brought within six years from the date of the violation, or three years from when the facts material to the right of action are known or reasonably should have been known by the United States, with an outside limit of ten years after the date on which the violation was committed, whichever is later. 31 U.S.C. §3731(b)(2) (2000).
18
31 U.S.C. §3730(b)(3) (2000). It is not uncommon for cases to remain under seal for many months, and sometimes many years. See, e.g., In re Cardiac Devices Litigation, 221 F.R.D. 318, 323-327 (D. Conn. 2004) (Qui tam case under the Act was filed against numerous hospitals in March 1994. The Government requested 16 extensions of the seal, the longest being for 3 years. The case was not completely unsealed until 2002); United States ex rel. Costa v. Baker & Taylor, 955 F. Supp. 1188 (N.D. Cal. 1997) (case remained sealed for 18 months).
19 31 U.S.C. §3730(c)(4) (2000). In such circumstances, stays may be sought by either the Government, in
order to take advantage of the collateral estoppel effect of a criminal conviction in a subsequent civil case, or by the defendant, to avoid having to assert Fifth Amendment rights against self-incrimination during questioning in the civil matter. See 2 BOESE, supra note 4, §5.03[A].
20 11 U.S.C. §101 et seq. (2000). There is a split of authority amongst the federal courts regarding whether
an exception to the automatic stay provisions of federal bankruptcy law applies to cases brought under the Act. See 2 BOESE, supra note 4, §5.03[C].
21
See, e.g., United States ex rel. Harrington v. Sisters of Providence in Oregon, 209 F. Supp.2d 1085 (D.
“punitive”22 or “remedial”23 nature of the Act; the distinction that is the basis for the historical test for survivability or abatement of a federal statutory cause of action. Therefore, lower courts faced with this question have reached conflicting conclusions.24
Part II of this article discusses the current version of the Act and its evolution from its original 1863 version. Part III discusses the historical common-law test for determining whether an action based on a federal statute survives or abates upon the plaintiff’s death. It then discusses the special problems of applying this test to the Act, caused by the dual remedial and penal nature of the Act, and the complex relationship between the qui tam relator and the Government as plaintiffs in cases brought under the Act. Part IV discusses the unique provisions of the Act that limit the courts’ subject matter jurisdiction in certain cases, and the effect those provisions have on the survivability analysis. Part V proposes adopting a simpler, policy-based test for survivability of a qui tam action under the Act, and explains why under this test such cases should survive the death of a relator, except in the rare case where the court cannot establish its subject matter jurisdiction, or the defendant is so severely prejudiced by the absence of the relator that principles of federal civil procedure require that the case be dismissed.
II. THE CIVIL FALSE CLAIMS ACT AND ITS QUI TAM PROVISIONS
A. The Current Version of the Civil False Claims Act
The current version of the civil False Claims Act [hereinafter, “the Act”] makes liable any person who knowingly presents, or causes to be presented, a false or fraudulent
22Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 784-785 (2000). 23Cook County, Illinois v. United States ex rel. Chandler, 538 U.S. 119, 130-131 (2003).
24
See Harrington, 209 F. Supp.2d 1085 (holding that the qui tam relator’s cause of action abates upon his
death); contra United States ex rel. Neher v. NEC, 11 F.3d 136 (11th Cir. 1994) (holding that the qui tam relator’s cause of action survives his death).
claim to the United States for payment or approval.25 The Act also imposes liability for making false records or statements designed to conceal, avoid, or decrease an obligation to pay or transmit money or property to the United States.26 The “knowledge” required for violation of the Act includes actual knowledge of the false information, deliberate ignorance of the truth or falsity of the information, and reckless disregard of the truth or falsity of the information.27 No specific intent to defraud is required.28 A person found liable under the Act is subject to treble damages and penalties of up to $10,000 per claim.29
A private person (the qui tam relator) may bring a civil action for violation of the Act, for the person and for the United States [hereinafter, the “Government”].30 The relator must serve the complaint and a “written disclosure of substantially all material evidence and information the person possesses” on the Government.31 The complaint must be filed in camera, under seal, and remains under seal for at least 60 days, subject to the Government’s motions to extend the seal for good cause shown.32 While the case remains under seal, the Government is supposed to investigate the claims and the evidence revealed in the disclosure statement, and determine whether it wants to intervene in the action and prosecute the defendant under its own name.33 If the Government declines to intervene, the relator may pursue the case without the
25 31 U.S.C. §3729(a) (2000).
26Id. The Act’s prohibitions are very broad, and encompass many different types of claims to the United
States. For a good categorization of the contexts in which the majority of cases under the Act arise, see generally 1 BOESE, supra note 4, §1.06.
27 31 U.S.C. §3729(b) (2000). 28Id.
29
31 U.S.C. §3730(a) (2000). The amount of penalties was increased pursuant to the Debt Collection Improvement Act of 1996, 28 U.S.C. §2461 (2000), to a minimum of $5,500 and a maximum of $11,000, effective September 29, 1999. 28 C.F.R. §85.3(9) (2000). 30 31 U.S.C. §3730(b) (2000). 31 31 U.S.C. §3730(b)(2) (2000). 32 Id.
Government.34 If the relator proceeds alone, the relator is entitled to receive between twenty-five and thirty percent of the proceeds or settlement of the action.35 If the Government intervenes, the relator’s share is between fifteen and twenty-five percent of the proceeds or settlement.36
B. The Evolution of the Act
The original False Claims Act was enacted in 1863, in response to alleged fraud and waste in government contracts between the Union army and unscrupulous private contractors during the Civil War.37 It contained a qui tam provision from its inception.38
Qui tam statutes were imported from England, where Blackstone characterized them as
penal statutes, designed to redress wrongs to the public.39 Because the qui tam relator sues on behalf of the Government, the relator can be looked upon as an advocate of the public interest, taking the place of public officials who would otherwise advocate the public interest.40 At the time of the original Act, the United States Attorney General had little assistance in carrying out his responsibilities, and the qui tam action was a popular means of counteracting the lack of an effective public police force for investigating and dealing with public wrongs.41 At the time of enactment, the False Claims Act authorized
34 31 U.S.C. §3730(b)-(c) (2000). 35 31 U.S.C. §3730(d)(2). 36 31 U.S.C. §3730(d)(1). 37
1 BOESE, supra note 4, §1.01[A].
38 Act of Mar. 2, 1863, ch. 67, 12 Stat. 696 (1863). The original Act authorized an award to the relator of
one-half of the amount of a final judgment against the defendant. Id.
39 3 W
ILLIAM BLACKSTONE, COMMENTARIES *161.
40
J. Randy Beck, The False Claims Act and the English Eradication of Qui Tam Legislation, 78 N.C.L. Rev. 539, 551 (2000).
41 1 B
remedies of double damages, penalties of $2,000 per false claim, and criminal sanctions.42
Despite the potential for large monetary awards against violators of the statute, early case law characterized the Act as remedial, but designed to protect the public interest. In United States v. Griswold,43 the trial court stated: “The statute is a remedial one. It is intended to protect the treasury against the hungry and unscrupulous host that encompasses it on every side, and should be construed accordingly.”44
During the 1930s and early 1940s, the Government’s reach into the economic life of the nation grew longer.45 More financial dealings between the Government and private business created more opportunities for fraud and whistle blowing. Enterprising
qui tam relators began to use information in publicly available criminal indictments to
initiate civil cases under the Act.46 In the landmark case of United States ex rel. Marcus
v. Hess,47 the qui tam relator merely copied a publicly available criminal indictment into a civil complaint and filed it under the then-current version of the Act.48 His complaint requested half of the Government’s proceeds from a civil judgment based on the complaint, although the relator brought no new information to the Government.49 The Government argued for dismissal, on the grounds that such cases served no public purpose, as they added nothing to the Government’s preexisting knowledge of a
42
Act of Mar. 2, 1863, ch. 67, 12 Stat. 696 (1863) (current version at 31 U.S.C. §3729 et. seq. (2000) (civil), and Title 18 Sections 286, 287, 1001, and 1002 of the United States Code (criminal)).
43 24 F. 361 (D. Or. 1885), aff’d, 30 F. 762 (1887).
44Id. at 366. Despite the apparent perception of the judiciary that the federal treasury was being attacked
on all sides, very few cases were brought under the 1863 version of the Act. See 1 BOESE, supra note 4, §1.01[B].
45 1 B
OESE, supra note 4, §1.01[B].
46Id. 47 317 U.S. 537 (1943). 48 Id. 49Id.
particular fraud, and served only to require the Government to share any recovery of fraudulent gains with a relator who had added no value to the case.50 The United States Supreme Court rejected this argument, based on the text of the Act, which did not limit rewards to relators who provided new information to the government.51
The Marcus decision prompted the Attorney General of the United States to request repeal of the qui tam provisions of the Act.52 Repeal legislation passed the House of Representatives, but the provisions were reinstituted by the Senate.53 Rather than repeal the qui tam provisions all together, to address the seeming ability of relators to enrich themselves under the Act with no concomitant benefit to the public, Congress amended the Act in 1943 to absolutely bar the federal courts from having jurisdiction over qui tam suits based on allegations known to the government before the suit was filed.54 This jurisdictional bar remained in place even if the relator was the original source of the government’s information.55
Although the 1943 amendments may have had the desired effect of emphasizing the remedial nature of the Act, the courts interpreted them in such a way as to have the undesired effect of chilling relators’ use of the statute to assist the United States in detecting fraud and waste in government contracting.56 In 1986, in response to Congress’ perception that “[F]raud permeates generally all Government programs ranging from welfare and food stamp benefits, to multibillion dollar defense procurements, to crop
50Id. 51Id. at 546.
52 S. Rep. 99-345 at 11 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5276. 53
Id.
54 31 U.S.C. §232-235 (1976) (current version at 31 U.S.C. §§3729-3733). 55 1 B
OESE, supra note 4, §1.02. The original Senate amendments allowed a relator who was the original source of the Government’s information to proceed even if the information was already in the possession of the Government, but the resulting conference report dropped this clause. S. Rep. 99-345 at 12 (1986),
reprinted in 1986 U.S.C.C.A.N. 5266, 5277.
subsidies and disaster relief programs,”57 Congress amended the Act, intending to make it easier and more attractive for relators to bring private suits under the Act.58 The most notable changes were: (1) A clarification that specific intent to defraud was not required to establish a violation of the Act, and that acting in deliberate ignorance of the fraud or with reckless disregard for the truth of the information in a claim provided to the Government was sufficient to violate the Act;59 (2) clarifying that the burden of proof for a violation of the Act was the standard burden for civil cases, i.e., a “preponderance of the evidence;”60 (3) lengthening the statute of limitations in certain cases;61 (4) changing the remedy for violating the Act from double to treble damages and significantly increasing the money penalties available under the Act;62 and (5) expanding the rights of
qui tam relators and increasing their financial incentives to bring suit under the Act.63
Despite these changes to the Act, all of which increased the harshness of the potential remedy for violating the Act, and many of which enhanced the ability and incentives for private persons to benefit from bringing violations of the Act to the Government’s attention, Congress repeatedly emphasized the public yet remedial purpose of the Act when explaining the amendments.64 Nowhere does Congress state that it
57
Id. at 2.
58
Id. at 4-6.
59Id. at 7; contra United States v. Aerodex, Inc., 469 F.2d 1003 (5th Cir. 1972).
60 S. Rep. No. 99-345 at 30-31 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5295-96; contra United
States v. Ueber, 299 F.2d 310 (6th Cir. 1962).
61 S. Rep. No. 99-345 at 15 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5280.
62 31 U.S.C. §3729(a) (2000). Despite the seemingly large increase in money penalties made by the 1986
Amendments to the Act (from $2,000 to a $10,000 maximum), according to the Congressional Research Service, the buying power of $2,000 in 1863 was actually close to $18,000 in 1986. H. R. 99-660 at 17 (1986). Thus, this was not really an increase as much as a cost of living adjustment, and an imcomplete one at that.
63See 31 U.S.C. §3730(c)(1) (2000); S. Rep. No. 99-345 at 23-24 (1986), reprinted in 1986 U.S.C.C.A.N.
5266, 5288-89.
64
See, e.g., S. Rep. 99-562 at 1 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5266 (stating the False
intended to redress individual wrongs via the Act’s qui tam enforcement scheme.65 The public interest purpose of qui tam actions under the amended Act has been recognized by a majority of courts that have interpreted the amended Act.66
Nevertheless, since enactment of the 1986 Amendments, not every court has agreed that the Act serves only a public purpose. In United States ex rel. Neher v. NEC
Corp.,67 the Eleventh Circuit Court of Appeals cited the fact that a qui tam relator may suffer substantial emotional and financial harm due to his unwitting involvement in fraud, or due to his status as a relator.68 Citing these examples of possible individual harms suffered by a relator, the Neher court held that the FCA’s qui tam provisions are intended to redress wrongs suffered by individual relators, and not the general public.69 The Neher court went on to hold that because the qui tam provisions of the Act are designed to redress individual wrongs suffered by relators, they are remedial as to the relator, and survive the relator’s death.70 The Neher court used the historical common-law test for survivability of a federal statutory cause of action to reach this result.71
result of fraud against the Government.”); id at 6. (describing the Act as “a civil remedy designed to make the Government whole for fraud losses”).
65
The 1986 amendments created a new cause of action against an employer who retaliates against an employee because the employee aided in a prosecution under the Act. 31 U.S.C. §3730(h) (2000). This cause of action contemplates that a successful employee-plaintiff has suffered an individual wrong, because the employee is entitled to “all relief necessary to make the employee whole” as a remedy, including reinstatement, two times the amount of back pay owed plus interest, and compensation for special damages.
Id. The double back pay damages of Section 3730(h) have been held to be remedial, rather than punitive. See, e.g., United States ex rel. Satalich v. City of Los Angeles, 160 F. Supp.2d 1092, 1109 (C.D. Cal.
2001); Wilkins v. St. Louis Housing Authority, 198 F. Supp.2d 1080, 1087-88 (E.D. Mo. 2001). This supports interpreting the anti-retaliation provision of the Act as redressing an individual wrong.
66See, e.g., United States v. Northrop Corp., 59 F.3d 953, 968 (9th Cir. 1995). 67 11 F.3d 136 (11th Cir. 1994).
68Id. at 138. 69
Id. The Neher court appeared to be construing the pre-1986 version of the Act, which the United States
had characterized as “remedial” in United States v. Bornstein, 423 U.S. 303, 315 (1976). The pre-1986 version of the Act also did not contain a specific remedy for employee-whistleblowers who experience retaliation as a result of their whistleblowing activities. See 31 U.S.C. §3730(h) (2000).
70
Neher, 11 F.3d at 138. The Neher court did not consider the possibility that the anti-retaliation
provisions of the Act, rather than the qui tam provisions, were designed to redress individual wrongs.
III. SURVIVABILITY OF A QUI TAM CASE UNDER THE ACT IV.
A. The Historical Federal Common-Law Test
The survivability of a cause of action created by federal statute is determined by federal common law, unless there is an expression of contrary intent in the statute itself.72 There is no expression of contrary intent in the Act.73 Therefore, if we use the historical test, we must look to federal common law to determine whether a cause of action under the Act survives the relator’s death.
Under the historical federal common-law test for survivability, actions that are “penal” abate upon the death of a plaintiff, while “remedial” actions survive.74 At common law, a statute giving a private right of action against a wrongdoer was truly “penal” only when it imposed punishment for an offense committed against the sovereign or the state.75 Statutes that created a private right of action against a wrongdoer for a party who was not injured by the wrongdoer (such as a qui tam relator) were characterized as “penal” in some ways, but not “strictly” penal in the traditional sense.76 As the United States Supreme Court explained:
The action of an owner of property against the hundred to recover damages caused by a mob was said by Justices Willes and Buller to be ‘penal against the hundred, but certainly remedial as to the sufferer.’ Hyde
v. Cogan 2 Doug. 699, 705, 706. A statute giving the right to recover back
money lost at gaming and, if the loser does not sue within a certain time, authorizing a qui tam action to be brought by any other person for threefold the amount, has been held to be remedial as to the loser, though penal as regards the suit by a common informer.77
72Sullivan v. Associated Billposters and Distributors, et al., 6 F.2d 1000, 1004 (2d Cir. 1925).
73 Neher, 11 F.3d at 137; United States ex rel. Harrington v. Sisters of Providence in Oregon, 209 F.
Supp.2d 1085, 1086 (D. Or. 2002).
74Schreiber v. Sharpless, 110 U.S. 76, 80 (1883).
75Huntington v. Atrill, 146 U.S. 657, 667-668 (1892); 3 W
ILLIAM BLACKSTONE, COMMENTARIES *2.
76Huntington, 146 U.S. at 667-668. 77
Id. at 667; see also Schreiber, 110 U.S.at 79 (characterizing as punitive a suit for statutory penalties and
forfeitures for copyright infringement, where the deceased plaintiff had not sustained any damage due to the alleged copyright infringement).
Statutes that provided for recovery to a party who was injured by the defendant’s conduct were considered “remedial,” and thus survived the death of the plaintiff, while statutes that provided for recovery to an uninjured party, even if not the public, were considered “penal” in some sense.78 With regard to common-law claims that were not based on statutes, suits based on claims that were considered “personal” to the plaintiff, such as tort actions for personal injuries, abated upon the death of the plaintiff, while suits based on property or contract rights survived the plaintiff.79
The difficulty with applying this approach to determining the survivability of a
qui tam action under the Act arises from the complex nature of the statute itself, in
addition to the complex relationship between the relator and the Government. The statute is designed to compensate the public (the Government) for losses sustained as a victim of fraud, and thus, fits the historical definition of a “penal” statute.80 Nevertheless, the statute is remedial in that it authorizes recovery to an injured party.81 The difficulty arises from the fact that the injured party is the public, against whom remedies for offenses were traditionally considered punitive, and therefore, not survivable. The Act codifies a remedy for the common-law tort of fraud, which was traditionally a “personal” claim of a plaintiff that does not survive death.82 Nevertheless, when the plaintiff is a qui
tam relator, the injury asserted is the injury of the Government, a party that does not die
with the relator.83 Even where the Government has declined to intervene in the case, it
78Huntington, 145 U.S. at 667.
79Almour v. Pace, 193 F.2d 699, 700 n.2 (D.C. Cir. 1951).
80 S. Rep. No. 99-345 at 1 (1986), reprinted in 1986 U.S.C.C.A.N. 5266. 81
Id.
82
Schreiber v. Sharpless, 110 U.S. 76, 80 (1883).
remains a party, with the right to have all pleadings and depositions transcripts served on it by request, and it may intervene at a later date “upon a showing of good cause.”84
1. The Dual “Remedial” and “Penal” Nature of the Act
The dual remedial and penal nature of the Act is best illustrated by a series of recent United States Supreme Court decisions on who can be a defendant under the Act. In Vermont Agency of Natural Resources v. United States ex rel. Stevens,85 the United States Supreme Court was asked to decide whether states were “persons” who could be sued under the Act.86 In holding that as a matter of statutory construction, states were not persons who could be sued under the Act, the Court described the Act as “a federal law designed to benefit ‘the citizens of the United States, not the citizens of any individual State that might violate the [statute]’.”87 Despite the fact that this purpose is consistent with a finding that the Act is remedial with regard to the Government, the Court’s opinion in Stevens muddied the waters regarding the punitive versus remedial nature of the Act with regard to relators. As part of its holding, the Stevens Court, without any historical analysis or the application of any test for distinguishing “punitive” civil actions from “remedial” civil actions, characterized the treble damages and civil penalty provisions of the Act as “punitive.”88 The Court did not distinguish between the “punitive” purposes of the Act’s remedies as applied by a qui tam relator versus their
84 31 U.S.C. §3730(c)(4) (2000). Out of 3,954 qui tam cases filed through September 30, 2002, the
Government had intervened in only 718 cases as of December 16, 2002. 2 BOESE, supra note 4, Appendix H-1. These statistics indicate that it is uncommon for the Government to intervene, either at the inception of the case or later for “good cause.”
85 529 U.S. at 786. 86Id. at n.15. 87
Id., quoting Newport v. Fact Concerts, Inc., 453 U.S. 247 (1981); see also Cook County, Illinois v.
United States ex rel. Chandler, 538 U.S. 119, 133 (2003), quoting S. Rep. No. 99-345 at 2 (1986),
reprinted in 1986 U.S.C.C.A.N. 5266 (stating that the basic purpose of the 1986 amendments was to make
the Act a “more useful tool” to combat fraud against the Government) (emphasis added).
88
Stevens, 529 U.S. at 784-785. The Court used the punitive characterization of damages under the Act to
bolster its argument that Congress did not intend to include the states, which are immune from punitive damages at common law, in the definition of “persons” who could be liable under the Act. Id.
“remedial” purposes as applied by the United States, although long-standing precedent permitted the Court to make such a distinction.89
After Stevens, lower federal courts were left with little guidance on how to characterize the Act for purposes of applying it to cases where the defendant was traditionally immune from punitive damages, and the Government had declined to intervene in the case. It is not surprising that lower courts came to conflicting conclusions regarding the applicability of the Act to municipalities, that engage in a great deal of contracting with the Government, yet are traditionally immune from punitive damages.90 It is also not surprising that a federal court faced with the specific question of survivability of a relator’s action struggled to answer the question consistent with
Vermont Agency and the historical common-law test. In United States ex rel. Harrington v. Sisters of Providence in Oregon,91 the only reported case since Stevens to decide the question of whether a cause of action brought by a qui tam relator under the Act survives the relator’s death, the court attempted to apply the traditional common-law test of “remedial” versus “punitive” to the question. Trying to reconcile legislative history indicating that the Act was primarily meant to be remedial with Vermont Agency’s characterization of the current version of the Act as “punitive,” the Harrington court held that even if the Act could still be considered remedial after Vermont Agency, because Harrington had not alleged personal or substantial individual harm, the claim was not
89See, e.g., Huntington v. Atrill, 146 U.S. 657, 668-669 (1892). 90
Compare United States ex rel. Chandler v. Cook County, 277 F.3d 969 (7th Cir. 2002), aff’d sub nom. Cook County, Illinois v. United States ex rel. Chandler, 538 U.S. 119, (2003) (holding that municipalities, which are presumed to be immune from punitive damage actions, could be sued under the Act), with United States ex rel. Dunleavy v. County of Delaware, 279 F.3d 219 (3d Cir. 2002) and United States ex rel. Garibaldi v. Orleans Parish School Bd., 244 F.3d 485 (5th Cir. 2001) (holding that municipalities cannot be sued under the Act because the Act imposes punitive damages).
remedial as to him, and did not survive his death.92 The Harrington court did not consider the effect of the United States Supreme Court’s holding in Vermont Agency that the injured party was the Government, which survives the relator’s death.93
Shortly thereafter, in Cook County, Illinois v. United States ex rel. Chandler94 the United States Supreme Court attempted to clarify its statements regarding the punitive versus remedial nature of the treble damages provisions of the Act, at least for purposes of applying the Act to municipalities that are immune from punitive damages at common law. The Chandler Court characterized the Act’s treble damages as having a “compensatory side, serving remedial purposes in addition to punitive objectives.”95 The Court specifically acknowledged the role the presence of a qui tam relator plays in characterizing the Act’s damages as “compensatory,” retreating from its prior statement in Vermont Agency that treble damages under the Act were “punitive.”96 The Court re-emphasized that the purpose of the statute was public, to compensate the Government, rather than to redress a qui tam relator’s individual wrong.97
2. The Modern Formulation of the Historical Test of Survivability
In Murphy v. Household Finance Corp.,98 the United States Court of Appeals for the Sixth Circuit articulated a test that is widely use for characterizing a federal statutory cause of action as “penal” or “remedial.”99 The Murphy test was created from earlier
92
Id. at 1088-1089.
93Id.
94 538 U.S. 119 (2003).
95Id. at 130; see also, United States v. Mackby, 261 F.3d 821, 831 (9th Cir. 2001) [hereinafter, Mackby I]
(holding that the Act’s treble damages provision, in combination with the Act’s statutory penalties, is not “solely” remedial). 96Chandler, 538 U.S. at 131. 97Id. 98 560 F.2d 206, 209 (6th Cir. 1977). 99
The United States Supreme Court did not cite to the Murphy test in either Stevens, 529 U.S. 765, or
judicial pronouncements of the factors a court should consider in determining the penal versus remedial nature of a federal statute.100 Under the Murphy test, a court looks at: (1) Whether the purpose of the statute is to redress individual wrongs or more general wrongs to the public;101 (2) whether recovery under the statute runs to the harmed individual, or to the public;102 and (3) whether the recovery authorized by the statute is wholly disproportionate to the harm suffered.103 Although this test has not explicitly been adopted by the United States Supreme Court, its elements are rooted in long-standing precedents discussing what a court should consider when determining the “penal” or “remedial” nature of a statute.104 Although the Murphy test has both a historical pedigree and a degree of flexibility, because of the dual nature of the Act and the differing interests and rights of the two parties deemed to be plaintiffs in a qui tam case, analyzing the Act under each of the test’s prongs does not yield a satisfactory answer to the question of whether a qui tam case survives the death of the relator.
a. The Purpose of the Act
As illustrated in Section II (B), supra, the text and the legislative history of the 1986 Amendments do little to clear up the confusion regarding the punitive versus remedial nature of the Act.105 Historically, breaches of public rights and duties, which
States ex rel. Neher v. NEC, 11 F.3d 136, 137 (11th Cir. 1994), the court used the Murphy test to determine survivability of a qui tam case under the Act.
100See Murphy, 560 F.2d at 208-209, quoting Huntington v. Atrill, 146 U.S. 657 (1892), and earlier cases
cited therein at length.
101Huntington, 146 U.S. at 668; Murphy, 560 F.2d at 209; 3 WILLIAM B
LACKSTONE, COMMENTARIES *161.
102Murphy, 560 F.2d at 209; Read v. Stewart, 129 Mass. 407, 410 (1880).
103Murphy, 560 F.2d at 209; see also, Stevenson v. Stoufer, 21 N.W.2d 287, 289 (Iowa 1946) (recovery of
$1750 based on overcharges totaling $26.25 under the Emergency Price Control Act of 1942 indicated that the cause of action created by the statute was penal, rather than remedial).
104See, e.g, Huntington, 146 U.S. at 668; Read, 129 Mass. at 410 (1880).
105 This confusion regarding the punitive or remedial nature of statutory treble damages provisions is not
unique to the Act. It also appears in construction of the federal antitrust laws and their treble damages provisions. See 54 AM. JUR. 2d Monopolies and Restraints of Trade §393 (2004); Cinnamon v. Abner A. Wolf, Inc., 215 F. Supp. 833, 837 (E.D. Mich. 1963).
affect the whole community, are “distinguished by the harsher appellation of crimes and misdemeanors,” and sanctions for such breaches are considered punitive.106 Given that the historical purpose of the Act, including its qui tam provisions, was to redress and deter general wrongs to the public, and the strong legislative history indicating that the 1986 Amendments to the Act have, first and foremost, the purpose of redressing general wrongs to the public, one could argue that the Act should be considered punitive, despite the continual insistence of Congress that its purpose is remedial. The traditional “punitive” versus “remedial” distinction simply does not fit a federal statute designed to redress financial losses to the Government, as well as to deter violations of public rights and duties. It does not provide guidance for a court to determine whether such a statute can or should be considered to redress an “individual” harm, albeit a harm to the Government, such that a cause of action brought under the statute should survive the relator, who has not suffered personal harm.
b. The Relationship Between the Relator and the Government and the Concept of a “Harmed Individual.”
The relationship between the relator and the United States has been described as one of “mandated cooperation.”107 The Act contemplates the relator working with the Government, but the Government exercising significant control over the case.108 When the United States intervenes in the action, it has the power to dismiss the action over the objections of the relator,109 settle the action over the objections of the relator,110 and
106 3 W
ILLIAM BLACKSTONE, COMMENTARIES *2.
107 Pamela H. Bucy, Private Justice and the Constitution, 69 Tenn. L. Rev. 939, 949 (2002). 108
Id.
109
31 U.S.C. §3730(c)(2)(A) (2000).
restrict the participation of the relator in the action.111 Even when the United States declines to intervene in the case, the United States may move to dismiss the relator’s case, if it believes that pursuing the case is not in the Government’s best interests.112 This intricate and unique relationship between the relator and the Government, where the two parties who are supposedly aligned in interest disagree about the merits of and/or the methodology for pursuing the case, is one of the factors that makes application of the historical test for survivability of a federal statutory cause of action unworkable with regard to qui tam actions brought under the Act.
A relator sues on behalf of the United States as well as himself.113 In Stevens,114 the United States Supreme Court unequivocally stated that this language means that the relator is not merely a mechanism of enforcement, as had been suggested by some lower federal courts.115 For the first time, the Court stated that a qui tam relator is a partial assignee of the United States’ injury in fact, with standing to assert a claim on his own
111 31 U.S.C. §3730(c)(2)(C) (2000). 112
See Swift v. United States, 318 F.3d 250, 251-252 (D.C. Cir.), cert. denied, 539 U.S. 944 (2003); United
States ex rel. Sequoia Orange Co. v. Sunland Packing Co., 151 F. 3d 1139, 1145 (9th Cir. 1998); Juliano v. Federal Asset Disposition Ass’n., 736 F. Supp. 348, 351 (D.D.C. 1990), aff’d, 959 F.2d 1101 (D.C. Cir. 1992). Although cooperation between the relator and the Government is likely and expected when the United States intervenes in the action and prosecutes the case, this cooperative atmosphere often evaporates when the United States declines to intervene, or when the interests of the United States and the interests of the relator do not coincide. Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 949 n.5 (1997). Case law is replete with references to conflicts between the relator and the United States when the United States has declined to intervene in a case under the Act, and the relator has taken action of which the United States does not approve. See, e.g., Schimmels and United States v. Schimmels, 127 F.3d 875 (9th Cir. 1997) (United States attempts to escape the outcome of the relator’s adversary proceeding in bankruptcy against a defendant under the Act after it declined to intervene in the relator’s proceeding); United States ex rel. Killingsworth v. Northrup, 25 F.3d 715 (9th Cir. 1994) (United States objects to settlement of case brought by relator under the Act, alleging collusion between the relator and the defendant to deprive the United States of its fair share of the settlement). Likewise, relators often claim that the United States does not represent their interests in conjunction with cases brought under the Act.
See Cedars-Sinai Medical Center v. Shalala, 125 F.3d 765 (9th Cir. 1997) (relator alleges that his interests are not adequately represented by the United States in an action collateral to a claim brought by the relator under the Act, because the United States had not yet decided whether to intervene in the relator’s action).
113See Schimmels, 127 F.3d at 877 n.1(emphasis added). 114
529 U.S. 765 (2000).
115
See, e.g., United States ex rel. Green v. Northrop Corp., 59 F.3d 953, 968 (9th Cir. 1995); United States
behalf, not merely as a tool of the Government.116 Although the Court’s characterization of the relator as a partial assignee assures the relator’s status as something more than a mechanism of enforcement, in so holding, the Supreme Court expressly rejected the idea that a qui tam relator alleges a personal injury sufficient to confer constitutional standing to bring a claim under the Act.117 According to the Court, the qui tam relator has no personal injury even if alleging having suffered personal harm or difficulty as a result of the defendant’s actions.118 The Court thereby rejected a concept that was embraced by some lower courts to explain why the relator had constitutional standing to bring suit.119
The characterization of the relationship between the qui tam relator and the United States also affects the characterization of the recovery that the qui tam relator receives. As the Vermont Agency Court stated, if the relator is merely a statutorily designated agent of the United States, “the relator’s bounty is simply the fee he receives
out of the United States’ recovery for filing and/or prosecuting a successful action on
behalf of the Government.”120 If this was the case, and the relator’s standing to sue in a
qui tam case brought under the Act is merely as an agent of the United States, the bounty
a successful relator received under the Act should have the same character as the United States’ recovery. If treble damages and penalties of up to $11,000 per claim under the
116
Stevens, 529 U.S. at 773.
117
Id. Because a qui tam relator represents the Government’s interests, several courts have held that a qui tam relator cannot pursue a qui tam action pro se. See United States ex rel. Lu v. Ou, 368 F.3d 773, 775
(7th Cir. 2004); United States v. Onan, 190 F.2d 1 (8th Cir. 1951). This holding appears to ignore the United States Supreme Court’s recognition in Stevens that the according to the Act, the relator sues on behalf of himself as well as the government. See n.102, supra. Indeed, the Lu court did not even mention Stevens in its opinion. Perhaps Judge Posner was influenced to dismiss the case outright without examining the soundness of holding that a pro se relator cannot bring a case in light of Stevens by the fact that he thought the complaint was “incoherent, even crazy.” Lu, 368 F.3d at 776.
118Stevens, 529 U.S. at 773-774.
119See, e.g., United States ex rel. Dunleavy v. County of Delaware, 123 F.3d 734, 739 (3d Cir. 1997);
United States ex rel. Kelly v. Boeing, 9 F.3d 743, 749 (9th Cir. 1993); United States ex rel. Neher v. NEC Corp., 11 F.3d 136, 137 (11th Cir. 1993); United States ex rel. Harrington v. Sisters of Providence in Oregon, 209 F. Supp.2d 1085 (D. Or. 2002).
Act are punitive when there is no qui tam relator, then they should be punitive when collected through the actions of the qui tam relator as an agent. If they are remedial, then they should be remedial whether collected via a qui tam relator agent or by the United States acting alone.
As the Stevens Court recognized, characterizing the qui tam relator as an agent of the United States reads the Act’s language authorizing a person to bring a civil action under the Act “for the person” as well as for the United States Government out of the Act, and therefore the Act.121 Therefore, the Act should not be so construed. 122 By characterizing the qui tam relator as a “partial assignee” of the United States, the Court remained true to the text of the statute, and avoided reading this provision out of the statute, in accordance with the tenets of statutory construction.
Nevertheless, the Court’s characterization of the relator as a “partial assignee” makes application of the second prong of the Murphy formulation of the common-law test to determine survivability of a qui tam action under the Act unworkable. An assignee typically stands in the shoes of the assignor with respect to both the injury and the remedy.123 But the typical assignee has paid some consideration to the assignor for the assignment,124 which is not the case for qui tam relators. Furthermore, it is well-established that a “claim” cannot simply refer to the right to bring suit.125 Congress
121
Stevens, 529 U.S. at 772.
122See TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (“It is ‘a cardinal principle of statutory construction’
that ‘a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.’”) quoting Duncan v. Walker, 533 U.S. 167 (2001).
123
Connecticut v. Physicians Health Services of Connecticut, Inc., 287 F.3d 110, 117 (2d Cir. 2002).
124
Id.
cannot grant standing to party based on only a public interest in the proper administration of the laws.126
Therefore, it remains unclear what part of the United States’ claim under the Act is assigned to the relator. It cannot be only the right to sue. The partial assignment of the United States’ “claim” to the relator may include an assignment of part of the United States’ actual injury. The Government may be considered a “harmed individual,” and the relator therefore be considered to have assigned status as a “harmed individual.”127 But because only the United States is injured in a cause of action brought under the Act, although recovery under the statute runs to both the qui tam relator and the Government, it may be that there is no “harmed individual,” and the statute is punitive with regard to both the relator and the Government.128
Historically, if a cause of action was assignable, then it was also considered to be survivable.129 The Court’s characterization of the Act as providing a right that is at least partially assignable supports a finding that the Act survives the death of a party under the long-accepted common-law rule,130 but contradicts the Court’s insistence that the qui tam relator has no personal injury for purposes of constitutional standing. The Court may not have realized that its characterization of the qui tam relator as a partial assignee for purposes of standing in Stevens could have implications for determining the survivability
126
Id.
127Murphy v. Household Finance Corp., 560 F.2d 206, 209 (6th Cir. 1977). 128Stevens, 529 U.S. at 770.
129 Momand v. Twentieth-Century Fox Film Corporation, 37 F. Supp. 649, 651 (W.D. Okla. 1941)
(“Assignability and survivability are convertible terms”); Imperial Film Exchange v. General Film Co., 244 F. 985, 987 (S.D.N.Y. 1915) (“By a long list of decisions the general test of survivability of actions is their assignability.”).
130 The common law rule has its genesis in English law. The common law rule that actions in tort do not
survive the death of the injured party was first modified by the Statute of 4 Edward the III, c. 7, to allow an action for trespass to goods and chattels to survive the death of a plaintiff. See Moore v. Backus, 78 F.2d 571, 573 (7th Cir. 1935).
of a cause of action under the Act. Nevertheless, shortly after the Stevens decision, the Court had an opportunity to undo some of the mischief it had wrought by characterizing the Act’s treble damages as penal. In Cook County, Illinois v. United States ex rel.
Chandler,131 the Court unanimously determined that municipalities, which are presumed to be immune from punitive damages, were subject to suit under the Act.132 The Court described the Act’s treble damages provision as having a “compensatory side, serving remedial purposes in addition to punitive objectives.”133 The Court explained:
There is no question that some liability beyond the amount of the fraud is usually ‘necessary to compensate the government completely for the costs, delays, and inconveniences occasioned by fraudulent claims’ [Citations omitted]. The most obvious indication that the treble damages ceiling has a remedial place under this statute is its qui tam feature with its possibility of diverting as much as 30 percent of the Government’s recovery to a private relator who began the action. In qui tam cases the rough difference between double and triple damages may well serve not to punish, but to quicken the self-interest of some private plaintiff who can spot violations and start litigating to compensate the Government, while benefiting himself as well.134
The Court further explained that even in the absence of a qui tam relator, treble damages may be necessary for the Government to fully recover what it lost due to the fraud.135The Court supported its characterization of treble damages as remedial by noting that the Act has no separate provisions for prejudgment interest, nor does it provide for recovery of consequential damages.136
The Court’s pronouncements in Stevens and Chandler suggest that even when the
qui tam relator receives the maximum recovery permitted under the Act, because the
131 538 U.S. 119 (2003). 132Id. at 132-133. 133Id. at 130. 134 Id. at 130-131. 135 Id. 136Id.
relator is not personally injured by the wrongdoer’s conduct, the recovery is to compensate for an offense to the public. But these pronouncements also suggest that the entire award, including the treble damages, is designed to ensure that the United States is made whole, and that public rights and duties are protected and enforced.
c. Proportionality of Recovery Under the Act
In keeping with the Act’s purpose of compensating an injured Government, in
United States v. Bornstein137 the Supreme Court characterized the Act’s then-double damages and money penalties of $2,000 per claim as remedial rather than punitive.138 Nevertheless, when the statute was amended in 1986 to authorize treble damages139 and civil penalties of up to $10,000 per claim,140 Congress stated that the enhanced remedy remained remedial, although intended to make the Government whole through a form of “rough justice,” rather than precisely compensate the Government for its losses.141 When amending the Act in 1986, Congress believed that “[E]ven in the cases where there is no dollar loss—for example where a defense contractor certifies an untested part for quality yet there are no apparent defects—the integrity of quality requirements in procurement
137
423 U.S. 303, 315 (1976).
138
But see Smith v. Wade, 461 U.S. 30, 85 (1983) (Rehnquist, J., dissenting).
139 The Act allows this to be reduced to double damages when the defendant has voluntarily disclosed to the
Government information regarding the false claim. See 31 U.S.C. §3729(a)(7) (2000).
140
31 U.S.C. §3729 (2000).
141United States v. Halper, 490 U.S. 435, 450 (1989). Most courts do not interpret the Act to allow for an
award of consequential damages or prejudgment interest. See, e.g., Cook County v. United States ex rel. Chandler, 538 U.S. 119, 131 (2003); United States v. Aerodex, Inc., 469 F.2d 1003, 1011 (5th Cir. 1973);
contra United States ex rel. Roby v. Boeing Co., 79 F. Supp.2d 877 (S. D. Ohio 1999) (awarding
replacement costs of a defective helicopter to the government). Thus, one could argue that the treble damages awarded under the Act substitute for the prejudgment interest and consequential damages that would normally be available to a successful plaintiff in a fraud case. Likewise, although a qui tam relator’s attorneys’ fees and costs are separately reimbursable under the Act, see 31 U.S.C. §3730(d)(2) (2000), the government’s investigative costs and expenses are not separately reimbursable. Chandler, 538 U.S. at 131. The treble damages and penalties take the place of these items. Id.
programs is seriously undermined.”142 Under the Act, money penalties are usually imposed,143 even when the Government has suffered little or no loss from the defendant’s false claims.144 Because penalties can be imposed even in the absence of any actual damages, many courts acknowledge that at least the money penalties under the Act are punitive in nature, and that they are clearly disproportionate to the damage done.145 The courts’ discomfort with the imposition of large fines that are disproportionate to actual harm done has led to some creative approaches to counting false claims for purposes of imposing damages and penalties.
United States v. Krizek146 is a good example of the courts’ creative approach to alleviating the discomfort they experience when applying what they consider to be the disproportionate remedies of the Act. In Krizek, an elderly psychiatrist and his wife, who was his office manager, were found liable under the Act for submitting false claims to the Government for Medicare and Medicaid payments over a period of six years.147 Because of the difficulty of determining which claims were false, the district court determined that on a day where Dr. Krizek submitted claims for time spent with patients in excess of nine
142 S. Rep. No. 99-345 at 3 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5268; see also United States v.
Mackby, 339 F.3d 1013, 1018 [hereinafter, Mackby II] (discussing fraud against the Government as not only harming the Government monetarily, but harming the administration and integrity of a Government program).
143 Many courts have held that money penalties are mandatory upon a finding of liability. See, e.g., United
States v. McLeod, 721 F.2d 282, 285 (9th Cir. 1983); United States ex rel. Fahner v. Alaska, 591 F. Supp. 794 (N.D. Ill. 1984) (imposing penalties for 551 false claims, although actual damages were less than $20,000); Mackby II, 339 F.3d 1013 (imposing penalties of $555,000 when actual damages were $58,151.64); contra Peterson v. Weinberger, 508 F.2d 45 (5th Cir. 1975) (limiting penalties awarded to prevent implication of the Excessive Fines clause and keep proportionality); United States ex rel. Garibaldi v. Orleans Parish School Board, 46 F. Supp.2d 546, 565 (E.D. La. 1999) (court reduced penalty awarded by the jury from $7,850,000 to $100,000, based on prior case law holding that the court has discretion to assure that penalties are not excessive and disproportionate), vacated on other grounds, 244 F.3d 486, 491-93 (5th Cir. 2001), cert. denied, 534 U.S. 1078 (2002), reh’g denied, 534 U.S. 1172 (2002).
144 S. Rep. 99-345 at 8 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5273; see also Hagood v. Sonoma
County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991); Rex Trailor Co. v. United States, 350 U.S. 148, 153 n.5 (1956).
145
United States v. Mackby, 261 F.3d 821, 830 (9th Cir. 2001) [hereinafter, Mackby I].
146
192 F.3d 1024 (D.C. Cir. 1999).
hours, all claims submitted in excess of the nine-hour benchmark would be considered false, and penalties under the Act would be assessed for each such claim.148 Nevertheless, because the claims sent to the Government indicated only the type of service performed, not the precise length of the service, the Special Master appointed by the district court to calculate Dr. Krizek’s liability assumed that each service took the minimum amount of time, and calculated the excess number of claims on that basis.149 Using this methodology, “the Special Master identified 264 days on which the Krizeks billed for more than nine hours, amounting to 1,149 false claims. Multiplying by $5,000, the minimum fine per claim under the False Claims Act, the Special Master calculated a total fine of $5.7 million.”150
The district court accepted the Special Master’s findings of fact, but apparently uncomfortable with the size of the fine, abandoned the nine-hour benchmark.151 Instead, the district court adopted a twenty-four hour benchmark, holding that the Krizeks would only be liable for claims submitted on days when they billed for more than twenty-four hours of work, and only for the services that were rendered after twenty-four hours had passed on a particular day.152 Using this new benchmark, the court assessed a $10,000 maximum fine under the Act for each of eleven false claims, entering judgment against the Krizeks for $110,000.153
On appeal, the D.C. Circuit remanded the case to the district court, instructing it to consider each billing form submitted by the Krizeks as a single claim, regardless of
148Id. at 1025-26. 149Id. at 1026. 150Id. 151 Id. 152 Id. 153Id.
how many services for a patient were recorded on the form.154 It also instructed the district court to allow the Government to introduce evidence refuting the Special Master’s use of the minimum amount of time that could be attributed to a particular service, and to introduce evidence that Dr. Krizek also saw private-pay patients on days when he billed excessively, thus potentially increasing the number of Medicare and Medicaid claims submitted in excess of twenty-four hours a day.155 Nevertheless, the D.C. Circuit did not overturn the district court’s use of the twenty-four hour benchmark, which was favorable to the Krizeks. The D.C. Circuit was apparently uncomfortable with the enormity of the original $5.7 million civil penalty imposed under the Act compared with the harm to the Government caused by the Krizeks.156
d. The Excessive Fines Clause
Courts recently have held that penalties and treble damages awarded under the Act that are disproportionate to the gravity of the defendant’s offense implicate the Excessive Fines Clause of the Eighth Amendment to the United States Constitution.157 Only punitive forfeitures implicate the Excessive Fines Clause.158 By holding that the
154
Id. at 1027.
155Id.
156 The D.C. Circuit also expressed its displeasure with the Government’s prolonged prosecution of the
case, stating:
“ This prosecution of a single doctor has now spanned over six years. It has consumed three weeks of trial, several days of hearings before the Special Master and the district court, two fully briefed, fully argued appeals, and five published opinions (three by the district court and two by this court). The five days on which the false claims were made occurred over twelve years ago. According to defense counsel, Dr. Krizek no longer practices medicine and is dying of cancer. . . . It is time for the parties to stop refighting battles long-ago lost and for the district court to bring this prosecution to an expeditious close.”
Id. at 1031.
Despite the D.C. Circuit’s desire that the litigation would end, after remand to the district court for recalculation of damages, the Krizeks appealed to the D.C. Circuit again, advocating a new theory of violation of the Excessive Fines clause (see discussion of the Mackby cases, infra., this section.), and when that failed, requested certiorari, which was denied. Krizek v. United States, 534 U.S. 1067, cert. denied, 534 U.S. 1067 (2001).
157
Mackby I, 261 F. 3d 821, 830 (9th Cir. 2001); see also, United States v. Bajakajian, 524 U.S. 321, 327-28, 334 (1998).
penalties and treble damages awarded under the Act implicate the Excessive Fines Clause of the Eighth Amendment, the courts have implicitly held that sanctions under the Act are punitive, without analyzing whether the Murphy (or any other) factors support such a characterization.159 In deeming statutory treble damages “punitive,” the courts have also ignored some obvious differences between true punitive damages and statutory treble damages. As the Fifth Circu
